Canadian Dollar edges higher vs USD; Oil slump cap gains amid Iran peace deal hopes

The USD/CAD pair kicks off the new week on a weaker note, eroding a part of Friday's strong gains to the 1.3825 region, or the highest level since April 13. Spot prices, however, lack follow-through selling and stabilize around the 1.3800 round figure amid mixed cues.

The US Dollar (USD) opens with a bearish gap amid reviving hopes for a potential US-Iran peace deal, which, in turn, is seen as a key factor exerting some pressure on the USD/CAD pair. Meanwhile, Crude Oil prices fall sharply in reaction to the optimism over Iran diplomacy, undermining the commodity-linked Loonie and acting as a tailwind for the currency pair.

However, the US and Iran remained ​at odds over key issues, including blockades on the ​Strait of Hormuz and Tehran's nuclear program. Adding to this, US President Donald Trump said on Sunday that he had told his representatives not ​to rush into ​any deal with Iran. This, along with hawkish US Federal Reserve (Fed) expectations, should help limit USD losses.

Following sticky inflation data and remarks from Fed officials, traders are heavily pricing in the possibility that the US central bank will raise interest rates by at least a 25 basis point (bps) by the year-end. This might hold back the USD bears from placing aggressive bets, backing the case for the emergence of some dip-buying at the USD/CAD pair at lower levels.

Meanwhile, the liquidity is likely to remain low as global markets are observing several key holidays. This could lead to some volatility and produce short-term trading opportunities. The focus, however, will remain on further developments surrounding the Middle East crisis. In the meantime, the fundamental backdrop seems tilted in favor of the USD/CAD bulls.